In the "How to make money in buy to let", I resisted the urge to get involved in an "it's a bubble/it's not a bubble" debate about property. The point I wanted to make is that trying to time the market is a waste of time more often than not and also that over the long term, that whether property is "cheap" or "expensive" (relative to what?) at the moment is not as important as people think.
To illustrate, imagine the worse case scenario. You invest all your savings in one go in shares or property at the peak of a bubble and in the subsequent 12 months the market crashes spectacularly and drops 25%. (Note that even during the stock market crash of 87, the market didn't fall by this much year-on-year and I'd imagine you'd have to a bit of searching to find an example of property prices sliding by this much in a year.) The question is how much does this shave off your return over the subsequent period? It obviously depends on the period; if you sell up after 10 years, you need an extra 4.1% growth per annum to recover the loss; if you wait 20 years, you only need 1.9% to recover while if you wait 30 years, you only need about 1.3%.
Now obviously, it'd be terrible to find yourself in this position after the first year but even in this worst case scenario, unless you need to liquidate quickly the situation isn't a complete dead loss as long as you can leave things for a long enough period of time. If you need to liquidate quickly, you are screwed but you should never have put so much vital money into such a volatile investment in the first place.
To illustrate, imagine the worse case scenario. You invest all your savings in one go in shares or property at the peak of a bubble and in the subsequent 12 months the market crashes spectacularly and drops 25%. (Note that even during the stock market crash of 87, the market didn't fall by this much year-on-year and I'd imagine you'd have to a bit of searching to find an example of property prices sliding by this much in a year.) The question is how much does this shave off your return over the subsequent period? It obviously depends on the period; if you sell up after 10 years, you need an extra 4.1% growth per annum to recover the loss; if you wait 20 years, you only need 1.9% to recover while if you wait 30 years, you only need about 1.3%.
Now obviously, it'd be terrible to find yourself in this position after the first year but even in this worst case scenario, unless you need to liquidate quickly the situation isn't a complete dead loss as long as you can leave things for a long enough period of time. If you need to liquidate quickly, you are screwed but you should never have put so much vital money into such a volatile investment in the first place.
